Hook / Thesis
Workday is a business I still want to own. The last three reported quarters show a consistent sequential increase in top-line scale and operating profitability, operating cash flow that is trending higher, and a balance sheet that gives management optionality. Taken together, these are the core levers that can support further multiple expansion or at least a re-rating if Workday continues to convert subscription revenue to free cash flow.
My trade idea is actionable: buy WDAY in a 205-225 entry window, use a hard stop at 195, take partial profits at 260 (near-term swing) and hold a larger tranche to 300 on sustained operating leverage and AI-driven product monetization. Time horizon is a swing/position trade (3-12 months); risk level is medium.
What Workday does and why the market should care
Workday is a cloud-only provider of human capital management (HCM), financial management and planning tools for enterprises. The company's value proposition is a tightly integrated application stack that customers can extend with planning, analytics and now GenAI features to reduce HR/finance friction. For investors the important point isn't the feature set alone; it's the high-retention subscription model and relatively predictable revenue streams that can convert into durable free cash flow as operating margins expand.
Why should the market care now? Two fundamental drivers are in play: (1) steady sequential revenue growth across the last three quarters, and (2) visible operating-margin expansion as the business scales and the company tightens discretionary spend. Those drivers support both cash flow and the potential for shareholder returns via buybacks or targeted investments into AI productization.
Read the plumbing - numbers that matter
Use the quarter-to-quarter flow as a reality check. Recent reported results show:
- Revenue momentum - Revenues rose from $2.24B in Q1 (fiscal 2026) to $2.348B in Q2 (filed 08/22/2025) to $2.432B in Q3 (filed 11/26/2025). That three-quarter sum (~$7.02B) annualizes to roughly $9.36B of revenue on a run-rate basis, demonstrating mid-single-digit sequential growth and scale in the core products.
- Profitability recovering - Operating income increased to $259M in Q3 (operating margin ~10.7%) from $248M in Q2 (~10.6%) and a much lower $39M in Q1. Net income has followed, with $252M in Q3, $228M in Q2 and $68M in Q1.
- Per-share results - Diluted EPS has moved from $0.25 in Q1 to $0.84 in Q2 to $0.94 in Q3, showing meaningful sequential improvement in earnings power as revenue and margins improved.
- Cash flow & balance sheet - Operating cash flow was $457M (Q1), $616M (Q2) and $588M (Q3); the three-quarter average is roughly $554M and indicates reliable cash conversion. At the end of Q3 the balance sheet shows total assets of ~$17.75B and equity of ~$8.88B, with other liabilities at ~$8.87B - a structural position that gives Workday flexibility for buybacks, M&A or continued R&D investment.
These numbers matter because they shift the discussion from "growth at all costs" to a story of revenue scale + improving margins + consistent cash generation. For an enterprise SaaS company, that combination usually precedes a multiple re-rating if management keeps execution steady.
Valuation framing - an estimated picture
The dataset does not include a direct market-cap figure, but we can estimate valuation using reported diluted share counts and the most recent price level. Diluted average shares in the latest quarter are ~268.6M; the recent closing price shown was approximately $216.93 (07/31/2025 close recorded). Multiplying those gives an approximate market capitalization of ~$58.3B (this is an estimate based on the available share and price figures).
Compare that to an annualized revenue run-rate of roughly $9.36B, which implies an approximate price-to-sales (market cap / run-rate revenue) of ~6.2x. For a scaled enterprise software franchise with improving operating margins and solid cash conversion, 6x sales is not an outlandish number, but it does require continued growth and margin expansion to justify multiple expansion versus public SaaS comps.
Important caveat: Workday carries long-term obligations and other liabilities that affect enterprise value, and the dataset reports long-term debt in older filings at roughly ~$2.97B. Investors should treat the 6.2x figure as a starting point and incorporate net-debt adjustments and any buyback-driven share reduction when building a full valuation model.
Catalysts to watch (2-5)
- Q4 / FY guidance - Strong guidance with continued revenue growth and operating-margin expansion would validate the recent run of sequential improvement (next fiscal quarter guidance will be a clear market catalyst).
- GenAI product monetization - Any announcement showing material cross-sell or paid add-ons tied to generative AI that increase average revenue per customer (ARPC) would shift the growth/monetization debate in Workday's favor.
- Cash-return policy - Acceleration of buybacks or a stepped-up capital-return program (management visible leverage or share reduction) would support a higher multiple; recent industry commentary suggests the market is watching buybacks closely.
- Enterprise deal flow / renewals - Large renewals and multi-module deals that increase deal sizes would be a structural positive for revenue visibility and stickiness.
- Margin trajectory - Continued improvement in operating margin from the ~10.6% range toward mid-teens would materially improve earnings upside given the revenue base.
Trade plan (actionable)
My recommendation is a staged long with a clear stop and two profit targets. Rationale: the name has shown sequential operational improvement and free-cash-flow generation, but the multiple is not cheap enough to ignore downside risk if growth stalls.
Trade type: Long (buy-to-open or cash long)
Entry zone: 205 - 225 (scale in 25% increments across this range)
Stop loss: 195 (hard stop; cut position if price closes below on a daily basis)
Target 1: 260 (take ~30-40% off the position) - horizon 3-6 months
Target 2: 300 (hold remaining position to this level if revenue and margin trend hold) - horizon 6-12 months
Position sizing: risk no more than 1-2% of portfolio on initial trade to allow for scaling and monitoring
Time horizon: swing/position (3-12 months)
Risk level: Medium
Execution notes: scale in to avoid buying into a single intraday pop. Move stop to breakeven once the first target is hit and trail the remainder at 10-15% below 20-day highs if management continues to execute.
Risks and counterarguments
Any investment here needs to be balanced with the following downsides:
- Competitive pressure and enterprise consolidation - The HCM/ERP space is increasingly contested by large platform vendors that can bundle services (competitive pricing pressure or a high-profile loss of business could slow Workday's growth).
- Valuation sensitivity - At an estimated ~6.2x revenue run-rate, the stock assumes continued healthy growth. If growth dips materially, multiple compression is an obvious and rapid risk.
- Execution risk on AI monetization - Management may invest heavily in GenAI without capturing meaningful monetization, which would pressure margins or defer cash returns.
- Macro / IT budgets - Enterprise IT spending can be cyclical; a macro slowdown that impacts large-scale ERP/HCM projects would be a drag on new license or expansion revenue.
- Insider / investor sentiment shifts - Public reports show high-profile portfolio moves away from Workday; if institutional selling accelerates it can amplify downside even if fundamentals are only mildly slower.
Counterargument I respect: Workday's multiple already prices material growth and margin expansion; if management fails to convert AI investments into ARPC gains or if enterprise deals slow, the stock can de-rate meaningfully. That is precisely why I use a defined entry and a tight stop here.
What would change my mind
I will reassess my bullish stance if any of the following appear in upcoming results or guidance:
- Quarterly revenue growth falls below the low-single-digit sequential increase we have seen (i.e., an outright sequential revenue decline).
- Operating margin deteriorates below 8% on a sustained basis despite revenue scale (suggesting failed leverage or expensive AI investments).
- Operating cash flow turns meaningfully negative quarter-over-quarter and the company starts burning cash after previously steady conversion.
- Large customer churn or visible loss of multi-module deals in enterprise renewals.
Where to find the primary read-outs
Workday's recent filings provide the quarter-level detail cited above (for example, the Q3 fiscal 2026 filing dated 11/26/2025 contains the latest revenue, margin and cash-flow figures).
For the formal filing see: Workday Q3 FY2026 filing (11/26/2025).
Bottom line / Conclusion
I remain bullish on Workday and recommend a buy in the 205-225 zone with a hard stop at 195. The company is at a constructive stage: sequential revenue growth, margin recovery and consistent operating cash flows paint the picture of a SaaS franchise that can deliver both growth and returns. That said, the valuation is not a free lunch; it requires execution. The trade plan above balances upside capture with disciplined risk control.
If Workday continues to grow revenue and expand margin while converting that revenue into free cash flow, this trade should work even if the market remains volatile. If those levers stall, the stop exists to preserve capital and force a reassessment.
Disclosure: Not investment advice. Investors should run their own models and position sizes.